January 2013

Many colleges across the country are now looking directly to oil and gas as a source of much needed revenue for education. With cut-backs to state budgets, many states are strongly considering whether to allow hydraulic fracturing (“fracking”) wells on their campuses. The University of Texas at Arlington (UTA) and Indiana State University have already commenced operations, with the UTA efforts generating over $10 million from such activities last year. The wells also provide a unique educational environment for petroleum engineering students, allowing them to see actual operations of a functioning oil and gas derrick within walking distance of their classrooms. Pennsylvania is considering six different campuses as candidates for fracking wells, and has taken legislative action to determine how such revenues will be shared. For example, the new Pennsylvania law allocates half of the royalties from well leases to the universities where the well is located, with another fifteen percent toward subsidizing tuition costs. However, given the temporary nature of the leases, some schools are directing those revenues to endowments, rather than tuition subsidies.

The Louisiana Mineral Law Treatise, edited by Patrick Martin, is now available for purchase. Nancy Scott Degan and Adam Zuckerman prepared the chapter on remedies for nonpayment and underpayment of royalties. This chapter includes discussion of the law applicable to royalty claims by landowners, royalty claims by royalty owners other than landowners, and claims for overpayment of royalties. The chapter also includes discussion of the 2012 legislation imposing new duties on operators to pay royalties under Louisiana’s risk-fee statute, La.R.S. 30:10. The treatise can be purchased online through Claitor’s atwww.claitors.com.

One of the biggest fines paid in the history of the U.S. Occupational Safety and Health Administration (OSHA) came from the oil and gas industry. In total, BP was fined approximately $150.6 million dollars by OSHA from 2009-2012. In a recent article published in the Daily Labor Report, David Michaels, Assistant Secretary for OSHA, reflected on the substantial resources that had been expended by OSHA to ensure worker safety in the oil and gas industry. In what may be an indicator of continued future heavy enforcement by OSHA of the industry, Michaels stated, “it’s worth noting that industry continues to have a very high fatality rate. So we’re very much focused on working with the industry to reduce that rate.” (06 DLR A-6, 1/10/13). While it may appear that this is a cooperative approach, it has been recognized by many people who work with the agency that partnerships and alliances have been disfavored during Michaels’ term and that enforcement activities have been the focus. Certainly, when considering the monumental fines assessed against BP, it remains clear that enforcement can mean very big fines from OSHA. Although the Secretary of Labor, Hilda Solis, recently resigned from her post, it is unclear what the future is for Michaels, but whatever the future may hold, paying attention to OSHA regulation and enforcement in the industry should be a focus for everyone.

The Second Circuit Court of Appeal has upheld a “judicial ascertainment” clause in a 1971 mineral lease, B.A. Kelly Land Co., LLC v. Questar Exploration & Prod. Co., 2012 WL 5503665 (Nov. 14, 2012). The lessors filed suit in 2009 claiming that the lease automatically terminated because there was a failure to produce in 1988 and 1989. The lease, however, had a judicial ascertainment clause which essentially required a court to determine that a breach had occurred and an opportunity to cure the breach before the lease could be terminated. The Second Circuit enforced the judicial ascertainment clause, reasoning that the lease is the law between the parties and the judicial ascertainment clause did not violate any law or public policy. The Second Circuit then granted leave to plaintiffs to amend their petition to add a claim for judicial ascertainment. In light of the judicial ascertainment clause, if the court determines that the lessees did not comply with an obligation to produce in the 1980s, the lessees should then be afforded an opportunity to cure such default before the lease can be terminated.

The issue of hydraulic fracturing, or fracking, continues to be an integral part of the debate over national energy policy. With the release on January 4th of the movie Promised Land, it does not appear the debate will subside any time soon. Matt Damon, one of the movie’s stars, has stated in at least one interview that the “jury” remains out on what the science will say about fracking. Nevertheless, a survey of recent case law indicates that judges appear to be less than impressed with the claims brought thus far. For more information about legal disputes involving fracking, see a recent National Law Journal article by clicking here.

The American Tort Reform Association released its annual Judicial Hellholes Report earlier this month and Louisiana received the dubious distinction of landing on the report’s watch list for the third consecutive year. The report, published annually since 2002, surveys Court rulings in states and some specific counties or parishes to identify “places where judges in civil cases systematically apply laws and court procedures in an unfair and unbalanced manner, generally against defendants.” The report highlights the top five worst jurisdictions to be sued in and calls attention to six additional locales that fall on the “Watch List.” Louisiana appears on the Watch List and the report discusses recent surprising verdicts in the state, noting that oil and gas companies have been frequent targets of plaintiffs and victims of surprising jury verdicts. Once such verdict discussed involved a $17.5 million award by a Calcasieu Parish jury against Chevron USA, Inc., Texaco, Inc. and Unocal wherein the jury found that a plaintiff had “suffered extensive benzene exposure” while employed by the companies. (more…)